Protectionism - Explained
What is Protectionism?
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What is Protectionism?
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
How Protectionism Affects Supply and Demand?
To the non-economist, restricting imports may appear to be nothing more than taking sales from foreign producers and giving them to domestic producers. Other factors are at work, however, because firms do not operate in a vacuum. Instead, firms sell their products either to consumers or to other firms (if they are business suppliers), who are also affected by the trade barriers. A demand and supply analysis of protectionism shows that it is not just a matter of domestic gains and foreign losses, but a policy that imposes substantial domestic costs as well.
Free trade results in gains from trade. Total surplus increases in both countries, as the two blue-shaded areas show. However, there are clear income distribution effects. Producers gain in the exporting country, while consumers lose; and in the importing country, consumers gain and producers lose.
In general, when a country sets a low or medium tariff or import quota, the equilibrium price and quantity will be somewhere between those that prevail with no trade and those with completely free trade.
- Trade Balance: Surplus and Deficit
- J Curve
- National Trade Data Bank
- Capital Account (Economics)
- Merchandise Trade Balance
- Current Account
- Income Payments
- Is it better to have a trade surplus or a trade deficit?
- Heckscher-Ohlin Model
- Linder Hypothesis
- The Balance of Trade as a Balance of Payments
- Supply and Demand Sides for Financial Capital?
- Flow of Capital
- Domestic Saving and Investment Determine the Trade Balance
- National Savings Identity and Trade Deficits
- How the Business Cycle Affects Trade Balances
- Trade Balance or Trade Surplus
- Comparative Advantage
- Absolute Advantage
- Specialization and Gain from Trade
- Absolute Advantage in All Goods
- Production Possibilities Frontier and Comparative Advantage
- Comparative Advantage and Mutually Beneficial Trade
- Opportunity Costs and International Trade
- Splitting Up the Value Chain
- How Economies of Scale Lead to Trading Advantages
- Closed Economy
- Import Quotas
- Double Column Tariff
- Infant Industry Theory
- Anti-Dumping Laws
- Non-Tariff Barriers
- Effects of Trade Barriers
- Who Is Benefited and Who is Harmed by Protectionism?
- Infant Industry Theory for Restricting Imports
- What is the Anti-Dumping Argument for Restricting Imports?
- What is the Environmental Protection Argument for Restricting Imports?
- Unsafe Consumer Products Argument for Restricting Imports?
- What is the WTO?
- What is the GATT?
- What are Free Trade Agreements?
- North American Free Trade Agreement
- Central European Free Trade Agreement
- General Agreement on Free Tariff and Trade (GATT)
- Common Market
- Common Market for Eastern and Southern Africa
- Central American Common Market
- Caribbean Community and Common Market
- What are Economic Unions?
- International Monetary Fund
- World Economic Forum
- Inter-American Development Bank
- Davos World Economic Forum
- Chamber of Commerce
- Jackson Hole Economic Symposium